Broker backing helps miners in lower London

SarahTurner

LONDON (MarketWatch) -- Shares in London lost ground on the first day of December as another piece of weaker-than-expected U.S. data depressed sentiment, although some strength in mining shares helped to cushion losses.

The U.K. FTSE 100 index (UKX) closed down 0.5% at 6,021.50, as November U.S. ISM factory index data fell to its lowest level for three years, to 49.5%. See Europe markets.

A reading below 50 indicates economic contraction.

Shares in drug maker AstraZeneca
AZN, -0.34%
(AZN) and banking group Barclays
BCS, -2.62%
(BARC) slipped after the data, down a respective 2% and 0.7%. AstraZeneca also was pressured by an outside study that said using its schizophrenia drug isn't always cost effective.

"The release of some worse than expected U.S. manufacturing data does seem to be setting the tone for the end of the week," said Jimmy Yates, a trader at CMC Markets. "This is really going to continue weighing across the board as traders assess the impact on companies repatriating foreign revenue streams whilst exporters also stand to suffer as a result."

However, miners such as Xstrata (XTA) and Antofagasta (ANTO) climbed in the top index.

Lehman Brothers said it's increasing its price forecasts for nickel and zinc. Zinc prices are expected to rise to $1.80 a pound in 2007, while nickel prices are expected to rise to $11.50 a pound in 2007.

The bank raised earnings estimates for Xstrata, BHP Billiton and Anglo American after upgrading forecasts for these metals.

"Xstrata continues to be our top pick in the sector due to its attractive valuation and exposure to our preferred commodities of zinc, nickel, copper and coal," the bank said.

Xstrata shares rose 2%. Antofagasta shares added 3.2%.

Goldman Sachs also raised its price estimates for nickel and zinc, in a general update on commodity prices.

"The price increases reflect tighter markets than we had previously expected, as well as adjustments for year to date pricing," the bank said.

Of other movers, shares in hotels group Millennium & Copthorne (MLC) rose 1.7% after getting a payout of $17.5 million over business interruption resulting from the 2001 terrorist attacks on the World Trade Center in New York.

Shares in Wolverhampton & Dudley (WOLV), an owner of pubs and maker of ale, rose 4.2% after it said fiscal-year ending Sept. 30 adjusted profit 13% on 7% revenue growth. Second-half same-pub sales at its Pathfinder Pubs rose 3.7%, and have climbed 9.1% since then.

Subject to acquisitions, the company plans to return 100 million pounds to shareholders next year, is looking to split its stock four-for-one, and is lifting its annual dividend 10% to 42.75 pence.

"Overall a solid statement with numbers in line, strong current trading and a 100 million pound buyback, although perhaps that could have been higher," said analysts from ABN Amro.

Rank Group (RNK) shares fell 2.9% after Citigroup downgraded the bingo hall and Hard Rock Café owner to hold from buy, noting that the shares have risen in value by 40% since August. It said that its valuation estimate includes a sale of the Hard Rock Café chain of around 70 million pounds.

"We acknowledge that a bid could materialize at a significant premium to the current share price. However, given the recent share price movement we see such an event as less likely," Citigroup said.

The bank also upgraded electricity transporter National Grid Group (NG)
NGG, -0.54%
to neutral from sell.

Noting that the U.K. electricity regulator is due to decide on electricity transmission prices on Monday it said: "We think concessions from Ofgem on Monday (e.g. a 4.4% return) could even trigger some modest upside."

Shares rose 2%.

Also in the power sector, utility International Power (IPR)
IPR, -2.05%
rose 2.7% at 348.50 pence after Morgan Stanley upped its price target to 410 pence from 350 pence.

"If it reinvests 75% of its surplus cashflows successfully -- and it has plenty of targets both for greenfield development and acquisition -- then it could enhance our base case EPS estimates by over 30%, and increase our fair value to 455p. And if reinvestment prospects do not emerge, which we think is unlikely, then IP will return surplus cash to shareholders, which would be equally EPS accretive," the broker said.

Shares in support services group Bunzl (BNZL) rose 0.9% after the company was upgraded to buy from hold at Deutsche Bank.

The bank said that, for the more cautious investor, it highlights Bunzl as the lowest risk play within the distributor universe given its highly defensive revenue base.

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